Quick Reference

Mortgage Interest Deduction Rules

Deduction limits, acquisition debt rules, HELOC deductibility, and points for 2025-2026

Last Updated: Feb 2026

Key Numbers

Post-2017 Limit

$750K

Pre-2017 Limit

$1M (Grandfathered)

HELOC

Home Improvement Only

PMI Deductible

Starting 2026

The mortgage interest deduction allows homeowners who itemize (Schedule A) to deduct interest paid on loans secured by their primary residence or second home. The One Big Beautiful Bill Act (OBBBA), signed July 2025, made the $750,000 debt limit permanent and reinstated PMI deductibility starting in 2026.

Should I Itemize? — 2026 Break-Even

Filing Status	2026 Standard Deduction	You benefit from itemizing only if your total itemized deductions exceed this amount
Married filing jointly (MFJ)	$32,200	Mortgage interest + property taxes + other deductions > $32,200
Single / Married filing separately (MFS)	$16,100	Mortgage interest + property taxes + other deductions > $16,100
Head of household	$24,200	Mortgage interest + property taxes + other deductions > $24,200

How much can you actually save? The deduction reduces your taxable income — not your tax bill dollar-for-dollar. If you paid $44,000 in deductible mortgage interest and you're in the 24% bracket, the deduction saves you about $10,560. In the 32% bracket, that same deduction saves about $14,080. The higher your marginal rate and the larger your mortgage, the more the deduction is worth.

Acquisition Debt Limits by Loan Date

Loan Origination Date	MFJ / Single Limit	MFS Limit
Before Oct 14, 1987	No limit	No limit
Oct 14, 1987 – Dec 15, 2017	$1,000,000	$500,000
After Dec 15, 2017 (permanent)	$750,000	$375,000

Requirements

Must Itemize: You must file Schedule A. If your total itemized deductions don't exceed the standard deduction ($32,200 MFJ / $16,100 single for 2026), the mortgage interest deduction provides no benefit.

Acquisition Debt Only: Funds must be used to buy, build, or substantially improve the home securing the loan. Debt used for other purposes (consolidation, tuition, etc.) does not qualify.

Qualified Homes: Deduction applies to your primary residence and one second home. The debt limit is a combined total across both properties.

PMI Deduction — New for 2026

PMI Detail	Rule
Effective Date	Tax year 2026 (contracts issued after 2006)
Full Deduction	AGI ≤ $100,000 ($50,000 MFS)
Phaseout	Reduces 10% per $1,000 above threshold
Fully Phased Out	AGI ≥ $110,000 ($55,000 MFS)

Covers private mortgage insurance (PMI), FHA mortgage insurance premiums (MIP), VA funding fees, and USDA guarantee fees on acquisition debt.

Debt Limits & Refinancing

If your mortgage debt exceeds the applicable limit, only the interest on the portion within the limit is deductible. Special rules apply when refinancing grandfathered pre-TCJA loans.

Refinancing Grandfathered Debt

Scenario	Limit Applied
Refinance ≤ old balance	$1M limit preserved (for remaining original term)
Cash-out portion above old balance	$750K limit applies to cash-out amount
Extended term beyond original	$750K limit applies after original term ends

Term trap: If you have 10 years left on a grandfathered $1M mortgage and refinance into a new 30-year loan, the $1M limit only lasts for the first 10 years. From year 11 onward, the $750K limit applies.

Binding Contract Exception

If you had a written binding contract before Dec 15, 2017, and closed before April 1, 2018, the loan qualifies for the $1 million limit even though it closed after the TCJA cutoff date.

Second Home Rules

Mortgage interest on a second home is deductible under the same rules as your primary residence. However, the debt limit applies to the combined total across both homes — not per property. You can designate only one property as your second home at a time; if you own more than two, you choose which qualifies each year.

HELOC & Home Equity Rules

Home equity loan and HELOC interest is deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. When used for qualifying purposes, the debt is classified as acquisition debt and counts toward your overall limit.

HELOC Deductibility by Tax Year

Tax Year	Rule
Before 2018	Deductible regardless of use (up to $100K equity debt limit)
2018 – 2025	Only deductible if used to buy, build, or substantially improve home
2026+	Same as 2018–2025 — OBBBA made current rules permanent

What Qualifies as “Substantially Improve”?

Qualifies (Adds Value / Extends Life)

Kitchen or bathroom remodel, room additions, new roof or siding, HVAC replacement, swimming pool, basement finishing, major structural changes

Does Not Qualify (Maintenance / Non-Home)

Painting, fixing leaks, replacing broken appliances, routine maintenance, debt consolidation, tuition, car purchases, vacations

Keep records — IRS requires “tracing”: If HELOC funds are deposited into a general account and used for multiple purposes, you must trace which expenses qualify. Retain invoices, contracts, and bank statements showing direct use of funds.

Combined Limit Example

Jane has a $600,000 mortgage and takes a $100,000 HELOC for a kitchen renovation. Her total acquisition debt is $700,000 — within the $750,000 limit, so all interest is deductible. If she had used the HELOC for a car instead, only the mortgage interest ($600K) would qualify.

Points & Origination Fees

Mortgage points (prepaid interest) are generally deductible. Whether you deduct them in full the year paid or amortize over the loan term depends on the loan type and property.

Points Deduction by Loan Type

Loan Type	Deduction Method
Purchase — Main Home	Fully deductible in year paid
Home Improvement — Main Home	Fully deductible in year paid
Refinance — Main Home	Amortized over life of loan
Second Home (any type)	Amortized over life of loan

Full Deduction Requirements

To deduct purchase points in full the year paid, all of these must be true: the loan is secured by and used to buy or build your main home, paying points is an established practice in your area at amounts not exceeding the norm, you use the cash method of accounting, and points are computed as a percentage of loan principal.

Amortization Example

Detail	Amount
Refinance loan amount	$100,000
Loan term	20 years (240 months)
Points paid	$4,800
Monthly deduction ($4,800 ÷ 240)	$20
Annual deduction ($20 × 12)	$240

Seller-paid points: If the seller pays points on your behalf, you (the buyer) can deduct them — but must reduce your home's cost basis by that amount. Early payoff: If you're amortizing points and pay off the mortgage early, you can deduct remaining unamortized points that year — unless you refinance with the same lender, in which case you continue amortizing the old points alongside any new ones.

Frequently Asked Questions

Can I deduct mortgage interest if I take the standard deduction?

No. You must file Schedule A and itemize your deductions to claim the mortgage interest deduction. If your total itemized deductions — including mortgage interest, property taxes, charitable contributions, and other qualifying items — don't exceed the standard deduction for your filing status, the mortgage interest deduction provides no tax benefit.

Is PMI tax deductible in 2026?

Yes, starting in tax year 2026. The OBBBA permanently restored PMI deductibility as part of the mortgage interest deduction. To qualify, your adjusted gross income (AGI) must be below $100,000 ($50,000 if married filing separately). The deduction phases out by 10% per $1,000 of AGI above those thresholds and is fully eliminated at $110,000 ($55,000 MFS). Covered premiums include PMI on conventional loans, FHA MIP, VA funding fees, and USDA guarantee fees.

Is HELOC or home equity loan interest deductible in 2026?

Only if the borrowed funds were used to buy, build, or substantially improve the home securing the loan. Interest on a HELOC used for debt consolidation, a car purchase, tuition, or other non-home expenses is not deductible. The home equity debt also counts toward your combined acquisition debt limit ($750,000 for loans originated after December 15, 2017).

Is mortgage interest on a second home deductible?

Yes. The deduction applies to your primary residence and one second home. However, the debt limit — $750,000 for loans after December 15, 2017, or $1,000,000 for older loans — applies to the combined balance across both properties, not per property. You can designate only one property as your second home at a time; if you own more than two homes, you choose which qualifies each year.

What if my mortgage balance is over $750,000?

You can still deduct interest — but only on the first $750,000 of the loan balance. For example, if your mortgage balance is $900,000, you can deduct 83.3% of the interest you paid ($750,000 ÷ $900,000). The same proportional rule applies to pre-2018 loans over the $1,000,000 limit.

Does refinancing affect my grandfathered $1 million limit?

You can preserve the $1,000,000 limit when you refinance, but only up to the remaining balance of the original loan at the time of refinancing — not the original loan amount. Any cash-out amount above that balance is subject to the $750,000 limit. If the new loan extends beyond the original loan's remaining term, the $1,000,000 limit applies only through what would have been the original payoff date; after that, only $750,000 qualifies.

Are mortgage points tax deductible?

Yes, in most cases. Points paid on a loan to purchase or improve your main home are generally fully deductible in the year paid. Points paid on a refinance or on a second home must be amortized (deducted evenly) over the life of the loan. If you pay off a refinanced loan early, you can deduct any remaining unamortized points in that year — unless you refinance again with the same lender, in which case you continue amortizing.

Sources

This content is for educational and informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for guidance tailored to your situation.